NO.084

IMF WORLD ECONOMIC OUTLOOK

In its latest World Economic Outlook, the IMF expects the Australian economy

will continue to perform strongly, growing by 3.2 per cent in 2006. The IMF

expects unemployment to remain around its current low level over this period,

and inflation to remain moderate.

The IMF attributes Australia’s strong medium-term prospects to the Government’s

“consistent track record of fiscal prudence and structural reforms aimed

at maintaining competitive product markets and flexible labour markets”.

Structural reforms recognised by the IMF include the introduction of tax and

welfare reforms to improve work incentives and the planned reform of Australia’s

industrial relations system.

Australia’s economy will continue to be supported by favourable global

conditions. The IMF finds that the current expansion of the world economy remains

broadly on track, forecasting global growth of 4.3 per cent in 2005 and 2006.

High and volatile oil prices remain a significant global risk. High oil prices

have been largely a result of strong demand growth and have so far not significantly

impacted on inflationary expectations. Continued high oil prices could have

a serious impact in countries where domestic demand is weak and where monetary

policy frameworks have not anchored inflationary expectations.

The IMF draws attention to the medium-term challenge posed by global current

account imbalances, as evident from the expanding United States current account

deficit and large Asian and European current account surpluses. The IMF highlights

the need for policy responses across a large number of countries to facilitate

the orderly adjustment of these imbalances. These include policies to raise

saving in the US by reducing the budget deficit and increasing private saving,

boost growth in Japan and Europe, deepen financial and corporate sector reform

in key Asian economies and increase investment in oil exporting countries. It

is important to note that these reforms are desirable in their own right.

The Government remains committed to sound macroeconomic policy frameworks and

to reforms which will sustain Australia’s strong economic performance.

CANBERRA

22 September 2005

Contact:

David Alexander

02 6277 7340